On 1/1/08 I have a balance in the allowance for doubtful accounts of 10,000. During 2008 I wrote off $7,200 on accounts and collected $2,100 on accounts previously written off. The balance in A/R was $200,000 at 1/1 and $240,000 at 12/31. I estimate that 5% of A/R will prove to be uncollectible. I am confused at to what my bad debt expense for 2008 is?

Rinnah, see your transactions as series of debits and credit and your figure for bad debt expense equals= $6,900. First, the provision for bad and doubtful debts is a credit balance of $10,00. When you collected an amount of $2,100 previously written off, you credit your allowance for bad debts account. Your next credit entry is the new provision of $40,000 x5%= $2,000. You then debit the provision account with amount written off, #7,200 and that leaves with $6,900 for that years expense

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Originally Posted by helemuo

Rinnah, see your transactions as series of debits and credit and your figure for bad debt expense equals= $6,900. First, the provision for bad and doubtful debts is a credit balance of $10,00. When you collected an amount of $2,100 previously written off, you credit your allowance for bad debts account. Your next credit entry is the new provision of $40,000 x5%= $2,000. You then debit the provision account with amount written off, #7,200 and that leaves with $6,900 for that years expense

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I don't understand where you get $40,000?

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Originally Posted by Rinnah

I don't understand where you get $40,000?

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You have $200,000 account receivable in the beginning and $240,000 at 31 December. The difference is $40,000 which you should base the 5% provision on. The old provision was based on $200,000. Does that help?